COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM: A CASE STUDY OF SON THUY COMPANY

COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM: A CASE STUDY OF SON THUY COMPANY

COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM:

A CASE STUDY OF SON THUY COMPANY

by

Duong Thi Ngan

A research study submitted in partial fulfillment of the requirements for the degree of Master

in Business Administration

Examination Committee Dr Do Ba Khang (Chairman)

Prof Dr John C S Tang

Dr Fredric W Swierczek

Previous degree Diploma of Business Administration

Ho Chi Minh University of Technology, Vietnam

Scholarship donor The Government of Switzerland/Swiss

Development Corporation (SAV)

Asian Institute of TechnologySchool of ManagementBangkok, ThailandApril 2000

My deepest thanks to the Government of Switzerland – the sponsor who createsopportunities for me to pursue MBA study at Swiss AIT Vietnam management program andthe Asian Institute of Technology

Also, I would like to thank the entire SAV and School of Management faculty and staff forhelping me during my studying MBA program

Special thanks are due to my close friend – Miss Pham Thi Hong Van – manager of MaterialSupply and Planning department in Son Thuy office furniture company who help me a lots onsupporting me information that I need for my research

I am grateful to my beloved parents, my younger sisters and my uncle – Mr Ta Huong,whose love and support always encourage me to further study

Abstract

Small and Medium Enterprises play an important role in Vietnamese economic development

It creates jobs, incomes and value to society Therefore, the government has supported thedevelopment of this business since the economic renovation Most of the investors interested

in some sectors: textile & garment, metallic products, wooden & office furniture processingetc which utilize manual work and use many employees

Office furniture industry is rather attractive for investors This research is carried out in order

to understand more about medium business in office furniture industry Firstly, the researchwill examine the current development of SMEs with the support of government Secondly,Son Thuy Company, a private and medium enterprise, in office furniture industry will beselected to analyze the success and competitive advantages

Currently, office furniture industry is rather attractive for investor who interested in due to thelow barrier to entry, less government interference, low bargaining power of suppliers Also,private and medium enterprise would take opportunities from supporting activities ofgovernment to develop Moreover, to success in the market, it is important for company tocreate and sustain its competitive advantages

This research will strategically analyze the company and determine its competitiveadvantages Also, the author tries to suggest the activities for company to sustain its currentleading position in the market

Table of contents

Title page i

Acknowledgment ii

Abstract iii

Table of contents iv

List of figures v

List of tables vi

1 Introduction 1

1 Rationale 1

2 Problem statement 1

3 Objectives of the study 2

4 Methodology 2

5 Scope of the research 3

6 Limitation: 3

7 Organization of the research 4

2 Literature review 5

2.1 Definition of SMEs 5

2.2 Competitive advantages 7

2.2.1 Low cost 8

2.2.2 Differentiation 9

2.3 Source of competitive advantages 9

2.4 Tools for analyzing competitive advantages 10

2.4.1.Value chain 10

2.4.2 Five forces model and macroeconomic environment 11

2.4.3 Strengths – Weaknesses - Opportunities - Threats analysis 13

2.5 Competitor analysis 14

2.6 Position of company in the market 14

3 Overview of Small and Medium Enterprises in Vietnam 16

3.1 SMEs business in Vietnam 16

3.2 SMEs’ role in the economy and advantages of SMEs development in Vietnam 16

3.3 Why SMEs are small in numbers 17

3.4 Characteristics of SMEs in Vietnam 18

3.5 Problems facing SMEs 18

3.6 Supporting activities for SMEs development in Vietnam 20

4 Son Thuy Office Furniture company and SWOT analysis 21

4.1 Son Thuy background 21

4.1.1 Introduction 21

4.1.2 Owners profile 21

4.1.3 Organization structure 22

4.1.4 Son Thuy’s business progress 22

4.2 SWOT analysis 25

4.2.1 Internal scanning 25

4.2.2 Findings 29

4.3 External scanning 30

4.3.1 Macro environment 30

4.3.2 Legal environment 32

4.3.3 Demographic environment 34

4.3.4 Social environment 34

4.4 Office furniture industry analysis 35

4.4.1 Barrier to entry the office furniture market 35

4.4.2 Bargaining power of suppliers 36

4.4.3 Bargaining power of customers 36

4.4.4 Rivalry among competitors 36

4.5 Findings 37

4.5.1 Opportunities 37

4.5.2 Threats 37

5 Competitor analysis, findings and discussion 39

5.1 Competitor analysis 39

5.1.1 Son Thuy position in office furniture market 39

5.2 Competitor analysis 40

5.2.1 Competitors profile 40

5.3 Findings and discussion 43

5.4 Benchmarking strengths and weaknesses of Son Thuy with competitors 44 5.5 Competitive advantages and vulnerability of competitive advantages 48

5.5.1 Competitive advantages 48

5.5.2 Vulnerability of competitive advantages 48

5.6 Son Thuy activities against competitors 48

6 Conclusions and recommendations 51

6.1 Conclusions 53

6.2 Recommendations 52

6.2.1 Create higher entry barrier 52

6.2.2 Defending its current market share 52

6.2.3 Employee satisfaction 53

Reference 54

Appendix 1 55

Appendix 2 58

Appendix 3 60

LIST OF FIGURES

Figure 2.1: Generic Building Blocks of Competitive advantages 7

Figure 2.6: Five forces model – Element of industry structure 12

List of Tables

Table 2.2: Definition of SMEs according to Department of Science, Industry and

Environment

6

Table 2.3: Definition of SMEs as Division of Trading and Industry 6

Table 4.1: Compensation policy for wooden office products according to selling

volume (for wooden table 1.2 m x 0.75 m x 0.75 m)

28

Table 4.2: Index of Gross Domestic Product by ownership and by kind of

economic activities

31

Table 5.1: Market share of office furniture products in Hanoi market 39

Table 5.3: Company product innovation against the imitation of competitors 49

The process of economic reform in Vietnam during the last few year had direct impact on thedevelopment SMEs and has promoted the comprehensive development and diversification oftrade, organization form and business areas This development however, is still limited inmany aspects, especially market constraints and the SMEs' internal physical limitations such

as capital shortage, old and slowly renewed equipment, outdated technology, poordiversification of product sample, and lack of good skills and management experience SMEshave not reached their full potential In addition, the lack of specific policies and strategies forSMEs also restricts their development

However, SMEs in Vietnam could take advantage of the labor force, and raw materialresources Vietnam has been implementing a large number of measures to further encourageand support the development of SMEs Those measures include creating a favorable legalenvironment to ensure all the business activities are effective; providing favorites andpromotion policies for SMEs in sectors such as textile and clothing, shoe and leather,consumer goods and export production, parts and spare parts manufacturing, food andfoodstuff processing, electrical and electronics and information technology; receiving andimplementing a number of technical assistance projects of international organizations andcountries to develop SMEs; establishing centers for consulting and supporting SMEs insectors, cities and provinces; and looking for and expanding internal and external markets

In Vietnam, Son Thuy Furniture Ltd is taken for illustration in this research study Generally,Son Thuy is a private company with about 500 employees and specializes in manufacturingand trading office furniture products (fabric office chairs, steel cabinets, steel pipe chairs andsafe boxes) in Hanoi market with a large distribution network throughout the whole country The results of this paper would benefit the management board of Son Thuy Ltd to improve itsbusiness, sustain its development and understand its competitors

2 Problem statement

SMEs in Vietnam have been less developed in comparison with those in other countries inSouth East Asian Awareness of the importance of improving the situation for SMEs has leadthe Vietnamese government to gradually support the development of SMEs in the marketeconomy in order to improve development To understand the motivation for development, it

is necessary to understand the real situation of the companies and the trends of development

of those companies in the industry

This paper will examine the current situation related to SMEs in Vietnam and the actualsituation of Son Thuy and other competitors (Bach Khoa Ltd., Moc Dong A Ltd., Xuan HoaCompany) in order to determine the movement for developing the SMEs sector As result ofthe discussion, it is very interesting to understand the current situation and help managersbuild the opportunities for developing their company

3 Objectives of the study

In general, the research is undertaken in order to determine the elements that support thedevelopment of the small and medium company and try to dig deeply in the real business ofcompanies in the office furniture market

The objective of the study is broken down into secondary objectives as follows:

1 Examining the current situation of SMEs’ operation in Vietnam,

2 Examining the external factors that affect on SMEs development,

3 Analyzing Son Thuy’s business to find the strengths and weaknesses,

4 Benchmarking Son Thuy strengths and weaknesses against competitors to determine thecompetitive advantages

5 Recommending for Son Thuy to sustain its competitive advantages

4 Methodology

To carry out the research, primary and secondary data are collected Secondary data is used

to examine the whole picture of SMEs in Vietnam, to find the opportunities and threats that

affect directly on the development of the company Secondary data is collected from report

from supporting organization and projects for developing SMEs in Vietnam and other relatedbook on SMEs

To understand the external environment that affects positively or threats to the development

of company, some information is needed Firstly, input and output market information(characteristic of input and output market) Secondly, information describes customers profile.Thirdly, it is office furniture market information such as customers, demand, price Informationconcentrates on company’s competitors’ characteristics, government policy for manufacturingSMEs and company’s relationship with their material suppliers etc

Primary data concentrates mostly on the company information that will help analyze the realsituation of Son Thuy and writing strengths and weaknesses of the company Also, primarydata will include competitors’ information that helps analyze their strengths and weaknesses.Drawing the comparison between strengths and weaknesses among Son Thuy and itscompetitors is necessary to analyze the competitive advantages

Primary data is collected through in - depth interview with managers and other officials in Son

Thuy Company Interviewing the information of company’s history, company’s performance,company’s organization and function of departments (operating, managers, marketing,human resource and so on), manufacturing strategy and capacity, company’s currentbusiness strategy and how it contribute to company’s success, management and employees’characteristic, company’s ability to access information about foreign markets and domesticmarkets, and distribution network

To examine the market, field - work activities also were done with the purpose of finding the

substitution products, demand and supply trends of using safe boxes, office chair (to analyzethe opportunities or threats) Field - work had been carried out through visiting the officefurniture shops around Hanoi Fifteen wholesalers’ shops in Hanoi were interviewed to getinformation about Son Thuy and its competitors on selling, products service andcompensation policy for their own shops Also, visiting four company’s factories in GiaLam(18 km far from Hanoi) in order to learn the manufacturing organization and operationmanagement

Figure 1.1 Research framework

I.

5 Scope of the research

Son Thuy has large distribution network in Vietnamese market However, in this paper, toanalyzing the competitive advantages of SMEs, especially in case of Son Thuy officeFurniture Company, Hanoi office furniture market is concentrated to narrow down the scope

of analysis Also, all competitors selected to analyze here are in Hanoi market only

6 Limitation

Firstly, information on Son Thuy’s competitors might be bias due to interviewing withwholesalers and sometime from Son Thuy’s staff Secondly, data on office furniture industry

is lacked

7 Organization of the research

The research will concentrate on two main parts based on two main sources of datacollection The first part of the research is based on secondary data for analysis In chapter 1,

Son Thuy analysis:

Business functionsCompetitive advantages

Competitors analysis

Suppliers

Entry barrier

Substitution

Law and

political

Economic Environment

DemographicTechnology

Social environment

the rationale and objectives of the research will be presented Chapter 2 will summarize thetheories concerning competitive advantages of the company and tools using for analyzingrelevant information Chapter three reviews the current situation of SMEs in Vietnam.

The second part mainly concentrates on the company and environmental affects directlyrelevant to the operation of the company This part includes chapter four describesbackground of Son Thuy company, using SWOT analysis tools to analyze internal andexternal issues related to the company Chapter five concentrates on company’s competitoranalysis, findings and discussion Last chapter presents the findings and provides therecommendation for company

Chapter 2 Literature review 2.1 Definition of SMEs

To understand which company is defined as an SME, an understanding of the definition of aSME is important

Table 2.1: SME’s criteria

Employees (Person)

thousandpeso

100 – 199 15 – 60

thousandpeso

Singapore <100 (employees) with around <499 ml S$

Source: on – line at http://aeup.brel.com/sme

The definition of an SME is rather different from country to country However, all the countriesdefine SME according to capital and employee numbers Some countries define according toturnover Table 2.1 lists the definition of four countries in the region with two categories: laborand capital For example, a Thai’ SME should have less than 50 people and capital less than

20 million baht, a medium enterprise would have less than 200 employees with less than 100million baht However, Singapore has just considered both small and medium with employeesless than 100 and capital of lass than 499 million Singapore USD

The definition of SMEs varies according to the nations In Vietnam, different Ministries orOffices have different definition of SMEs Firstly, the Institute of Science and Labour defines asmall enterprise as one with less than 50 employees Other definitions are based on thecriteria: number of employees and registered capital; they also regard to the industries inwhich the establishments operate (Table 2.2)

Table 2.2 Definition of SMEs according to Department of Science, Industry and Environment

Construction and Industrial

manufacturing

<200 < 5 billion VND

Source: Report from Department of Science, Industry and Environment

The Department of Science, Industry and Environment concentrates mostly on manufacturingcompany and manufacturing companies should have around 200 employees with capital less

than 5 billion VND However, for light or trading and tourism industry, it required moreemployees and lower capital.

Table 2.3 Definition of SMEs according to Division of Trading and Industry

Manufacturing,

Construction

< 500 < 10 billion

Source: Division of Trading and Industry

Definition of SMEs according to the Division of Trading and Industry defines an SME as onewith no more than 500 employees, less than VND10 billion (Table 2.3) Moreover, definition

of SMEs according to Small and Medium Enterprise Development Fund (SMEDF-VN-EUprogram) defined that those enterprises holding from 10-500 employees and legal capitalfrom US$ 50,000 to US$ 300,000 are supported by the program

Therefore, number of employees and capitals for one SME depend on what type of company(manufacturing or service in heavy or light industry)

In short, there are many different definitions of SMEs in Vietnam Recently, the governmenthas been recognized the issue and has granted a Curricula number 681/CP-KTN, dated the

20 of June 1998, which stimulates that “ An SME is the enterprise with no more than 200annually full-time employees and have registered capital less than VND5 billion” TheCurricula also states that in execution, government agencies can base on the specific localeconomic and social situation to apply both criteria of number of employees or/and registeredcapital to classify SMEs

Base on the definition of Division of Trading and Industry, Son Thuy manufacturing companywith around 500 full time employees is defined as medium - size company

2.2 Competitive advantages

Competitive advantage is at the heart of a firm’s performance in a competitive market Afterseveral decades of vigorous expansion and prosperity, however, many firms lost sight ofcompetitive advantage in their scramble for growth and pursuit of diversification

Firms always try to find methods to build competitive strategy in order to establish a profitableand sustainable position against competitors Selecting competitive strategy depends on twofactors: attractiveness of the industry and determinants of relative competitive position within

an industry Both factors are shaped by a firm and this is what makes the choice of acompetitive strategy both challenging and exciting

Competitive advantage can not be understood by looking at a firm as a whole It results frommany discrete activities a firm performs in designing, producing, marketing, and supporting itsproduct Each of these activities can contribute to a firm’s relative cost position and createsbasic for differentiation Therefore, a systematic way of examining all activities a firmperforms and how they interact is necessary to analyze the sources of competitiveadvantage

According to Hills and Jones [4], competitive advantage is developed based on four mainfactors: efficiency, quality, innovation and customer responsiveness These factors areinterrelated to each other For example, superior quality could lead to superior efficiency,innovation enhances efficiency, quality and customer responsiveness (Figure 2.1)

Figure 2.1: Generic Building Blocks of competitive advantage

Source: Hills and Jones, 1998, Strategic Management: an integrated approach

Efficiency in the firm is measured by the outputs/inputs The more efficient a company, thefewer the inputs required to produce a given output

The quality of products is good and service that are reliable in the sense they do the job thatthey are designed for and do it well The impact of high quality according to Porter tocompetitive advantage of the company is two folds Firstly, it provides increasing value in theeye of consumers In turn, this enhanced perception of value allows the company to chargehigher prices for its products that directly affect to business results Secondly, the impact ofhigh quality on competitive advantage comes from greater efficiency and the lower unit cost itbrings (Figure 2.2)

Competitive advantage:

Low costDifferentiation

Superior quality

Superior customer responsivenes s

Superior innovation Superior

efficiency

Figure 2.2: Impact of quality on company’s profit

Source: Hills and Jones, 1998, Strategic Management: an integrated approach

Innovation is defined as the single most important building block of competitive advantage Inthe long run, competition could be viewed as a process driven by innovation Innovation maygive a company’s product a unique characteristic As a result, uniqueness can allow acompany either to differentiate itself from its rivals and charge premium price for its product orreduce unit costs far below their competitors

Customer responsiveness is achieved if a company is able to do a better job than itscompetitors of identifying and satisfying the needs of its customers Consumers would thenplace more value on its products, creating differentiation based on competitive advantage.Improving the quality of a company’s product offering is consistent with achieving customerresponsiveness as is developing new products with features that existing products lack

2.2.1 Low Cost

Cost leadership is one of two types of competitive advantages that a firm may process Cost

is also of vital importance to differentiation strategy because a differentiator must maintaincost proximity to competitors Unless the resulting price premium exceeds the cost ofdifferentiating a differentiator will fail to achieve superior performance Managers recognizethe importance of cost and many strategic plans establish ‘cost leadership’ or cost ‘reduction’

as goals However, the behavior of cost is rarely well understood While disagreement oftenexists among managers about a firm’s relative cost position and reasons underlying it Coststudies tend to concentrate on manufacturing cost and overlook the impact of the otheractivities such as marketing, service, and infrastructure on relative cost position Moreover,the cost of individual activities is analyzed sequentially without recognize the linkages amongactivities that can affect on cost Finally, firm has great difficulty assessing the cost position ofcompetitors an essential step in assessing their own relative position

Improving the theory of firm’s competitive advantage, Porter [8] discuss the importance andthe imprecise of cost management To analyze the cost, there needs to be a consensusabout why cost information is important and what type of cost information is useful for publicpolicy decision maker and how to package the results in way that is credible for all interestedparties However, relative cost analysis is critical to strategy formulation for firms, industryassociations and nations

Increased

quality

Higher priceIncreased

reliability

Increased

Higher profit

2.2.2 Differentiation

Following Porter [8] theory, a firm differentiates itself from its competitors if it can be unique atsomething that is valuable to buyers Differentiation is one of two types of competitiveadvantage a firm may possess Differentiation allows firm to command a premium price, tosell more of its product at given price or to gain equivalent benefits Hereafter is the checklist

of differentiating factor resulted from broad competitive scope:

 Ability to serve buyer needs anywhere

 Simplified maintenance for the buyer if spare parts and design philosophy arecommon for a wide line

 Single point at which buyer could purchase

 Single point for customer service

 Superior compatibility among products

 Product features and performance offered

 Services provided

 Intensity of an activity adopted

 Contents of an activity

 Technology employed in performing activity

 Quality of input procured for activities

 Procedure governing the actions of personnel in an activity

 Skill and experience level of personnel employed in an activity and training skillprovided

 Information employed to control an activity

2.3 Source of competitive advantages

Distinctive competency is a unique strength that allows a company to achieve superiorefficiency, quality, innovation, or customer responsiveness, thereby to create superior valuesand to attain a competitive advantage A firm with a distinctive competency can differentiateits product or achieve substantially lower cost than its competitors These distinctivecompetencies of an organization come from two complementary sources: resources andcapabilities (Figure 2.3)

Figure 2.3: The root of competitive advantage

Source: Hills and Jones, 1998, Strategic management: an integrated approach

Porter [8] makes clear that a company’s resources include tangible (land, buildings, plant andequipment) and intangible (brand, reputations, marketing know – how) Company’s capabilityrefers to the skills at coordinating resources and putting them to productive use (Figure 2.3)

2.4 Tools for analyzing competitive advantage

PROCUREMENTInbound

logistic

Operation Outbound

logistic

Marketingand sale

as well as after sale assistance In detail, primary activities consist of inbound logistics,operations, outbound logistics, marketing and sale, and service Supporting activities supportprimary activity and each other by providing purchased inputs, technology, human resourceand various firms’ functions (Figure 2.4)

Greenley’s [3] theory is rather similar to Porter and suggested that, to apply value chain tools,

a company has to audit its internal environment Resource capabilities that are employedrange from capital through plant and machinery, people and distribution channels to varioustypes of intangible assets Resources are divided into financial structure, physical resources,human resources, administrative systems and intangible resources Operational capabilitiesinclude marketing, research and development, production, Finance, and personnel.Managerial capability is illustrated in Figure 2.5

Figure 2.5: Managerial capability checklist

 Problem solving procedures

 Reward and incentive schemes

Source: Adaptation of Ansoff’s management capability profile (H I Ansoff, Implanting Strategic management)

2.4.2 Five forces model and macroeconomic environment

A major role of external audits is to provide an understanding that, the organization objectivesmay be achieved as well as allowing for company to recognize opportunities for settingadditional objectives, and threats that a company copes with in their business However,knowledge about trends inthe external environment is required for all the subsequent stages

of strategic management

The Five forces model is a tool for analyzing industry According to Hill and Jones [4],industry is defined as group of companies offering products or services that are closesubstitutes for each other Two of the authors emphasized the important task of managers is

to analyze the competitive force in an industry environment They adopt Porter’s five forcesmodel as a model that includes elements, which shape competition among the industry Themodel includes the risk of new entry by potential competitors, degree of rivalry amongestablished companies within an industry, bargaining power of buyers, bargaining power ofsuppliers, and the threat of substitute products (Figure 2.6)

Figure 2.6: Five forces mode – Element of Industry structure

Source: Michael E Porter, 1985, Competitive advantage: creating and sustain superior performance

Porter [8] also argued that stronger each of this factor is, the more limited is the ability ofestablished companies to raise the price and earn greater benefits The strength of this modeldetermines the ability of firms in an industry to earn, and determine industry profitability Industries in practice are surrounded by macroeconomic environment – the broadereconomic, technological, social, demographic and political environment as shown in Figure2.7

Rivalry among established firm

Risk of entry by potential competitor

Bargaining power of buyers

Threat of substitute products

Determinant power of buyer

Buyer volume Buyer switching cost Buyer information Ability to backward integrate Brand identity

Buyer profit

…………

Determinant of supplier power

Determinant of input

Switching cost of suppliers and

firms in the industry

Supplier concentration

Important of volume to supplier

Cost relative to total purchase in

the industry

Threat of forward integration

relative to threat of backward

Figure 2.7 The role of Macroeconomic environment

Source: Hill and Jones, 1998, Strategic Management, pp 84.

From the viewpoint of a company’s external environment (macroeconomics environment), allthe authors Porter [8, 9], Hill and Jones [4], and David [2] refer to similar elements of eachcategory Firstly, the macroeconomic environment analysis includes interest rate, currencyexchange rate, and economic growth rate and inflation rate which are related directly to theeconomy Secondly, the technological environment consists of technological trends, whichmay directly affect on the height of barriers to entry and may reshape the structure of anindustry Thirdly, the social environment includes social movement, consumers’ interest ortrends of the fashion etc Fourthly, the demographic environment may affect the increase orreduction of consuming trends Lastly, components of the political and legal environment refer

to government regulations, circulation, decree, or instructions and how certainty degree is ofeach kind that directly affect on the company’s business

2.4.3 Strengths – Weaknesses - Opportunities - Threats analysis

This tool is applied in order to analyze the internal and external environment that affects onthe company business For internal environment, all business function (marketing, humanresource, financial, sale, board of managers, production etc) are analyzed in order to find thecompany’s strong points and weaknesses point Base on these strengths and weaknesses,company has clear picture to build strategy for improving current business

For external environment, company has found external factors that support or hindercompany’s business External environment analysis should also includes industry analysis,macroeconomic environment (legal, politic, demographic, economic and technologyenvironment etc.)

2.5 Competitor analysis

Identifying and analyzing competitors in the industry is very important for company tounderstand its position in the market as well as plan the strategy to compete effectively To

Potential competitors

Potential competitors

Potential competitors

Potential competitors

Potential competitors

Political and

legal

environment

Technological environment

Demographic

environment

Social economic environment

analyze competitors, it is necessary to acquire knowledge about its competitors which arequite similar to its own internal knowledge as following, as Greenley [3] at a companysuggested:

 Size, growth and profitability

 Objectives, assumption

 Current and past performance

 Organization and culture

 Cost - structure and exist barriers

 Strengths and weaknesses

Greeley also clearly explained the results getting from those sources For example, knowingobjective of the company serve two purpose as identifying and aspiration that are to bepursued following recent growth and profitability trends, identifying strategy follows fromobjectives that competitors design

Greenley [3] suggested a number of important analytical steps:

 Identify ability of firms to be able to move into another strategy group or new firms to enterany group, which can be avoided by mobility barriers such as economies of scale,product differentiation, technology and capital

 Identification of firms that are marginal participants of specific group

 Use the map as a basic for charting changes to firms’ strategies as an input forforecasting potential changes to competitors’ strategies

However, Porter [8] concluded that to analyze competitors, it is not only necessary to collectdata but also analyze different options that exist with relation to competitors: taking offensive,deterring and defending against competitors or allying with one competitor against the other.Also, it is necessary for benchmarking with competitors on strategy and capabilities.Additionally, he suggested that when analyzing capabilities, it is better to develop anoperation profile of competitor (plant, equipment, and saleforce configuration) then, thepurpose of the activity serves the process of comparison among companies based on theirstrengths or weaknesses

2.6 Position of company in the market

Market position of the company has been divided into four positions: market leader, marketchallenger, market follower and market nicher as given in the Table 2.1

Table 2.4 Hypothetical Market Strategies

Source: Kotler, P – S,H Ang …, 1996, Marketing management.

According to the Kotler, Ang [7], the market leader has the largest market share in therelevant product market Market leader may lead to other firms in price change, new productintroduction, distribution coverage and promotion intensity The leader is the orientation pointfor competitors Unless a dominant firm enjoys a legal monopoly, its life is not all togethereasy It must maintain constant vigilance Other firms keep challenging its strength or trying totake advantage of its weaknesses The market leader could easily miss a turn in the road andplunge into second or third position A product innovation may come along and hurt theleader The dominant firm might look old – fashioned against newer and peppier rivals.Dominants firm’s cost might rise excessively and hurt its profit Kotler and other authors intheir books give the guidelines for dominant firms to sustain the number one position in themarket Firstly, a firm must find the ways to expand total market demand Secondly, firmsmust protect its current market share through good defensive and offensive actions Thirdly, afirm could try to increase its market share further even if market size remain constant.

Chapter 3 Overview of Small and Medium Enterprise in Vietnam

This chapter will examine the current situation of Small Medium Enterprises in Vietnam

3.1 SMEs business in Vietnam

At present in Vietnam, SMEs exist and develop in all economic fields and areas, undervarious forms of enterprise such as state-owned enterprise, private enterprise, corporateenterprise, joint stock company, limited company, foreign-owned company, joint venturecompany These forms differ from that in the past when under a prevailing commandeconomy, SMEs mainly existed in two forms: state owned enterprise and co-operative TheVietnamese government encourages internal and external companies, as well as persons, toinvest capital and technology in building, developing, co-operating and setting up jointventures with SMEs in any economic sector on the basis of observance of its laws, equalityand mutual benefits

3.2 SMEs’ role in the economy and advantages of SME development in Vietnam

SMEs have contributed significantly to the economic development of the country and haveresolved many social problems during the last 10 years of economic renovation In industry,trade, service and construction sectors, SMEs have employed approximately 4.5 millionemployees (representing 13 percent of labor force in Vietnam) Total industrial output value

by SMEs account for 28 percent of the total national industrial output value SMEs haveproduced large portions of necessary consumer goods, made some 35 percent of total exportvolume, provided input and output services and implemented sub-contracts for large and

domestic enterprises (1999 On – line Available at: http://aeup.brel.com/sme/sme20.html)

Advantages of SMEs of Vietnam SMEs can be found mainly in the labor sectors or sectorswith high labor contents per product unit Low capital shortage and labor redundancy inVietnam have led to a comparison of the advantages of the development and improvement ofcompetitiveness between domestically produced goods and imported goods SMEs are highlyactive, and are able to react quickly and appropriately to market fluctuations This enablesthem to quickly change in terms of kind, sample and form of products without largerequirements of investment capital

Although the positive factors above indicate the potential for the development of SMEs in thefuture, there are a number of constraints that need to be overcome Firstly, capital scale issmall, limited and not allocated equally among sectors, areas and localities Secondly, theability to access information on markets, techniques and technology is lacking and theshortage of information on technical standards and the demand of external markets areespecially poor Thirdly, most of the equipment is old and outdated Fourthly, managementand the executive levels of the companies are still weak Many of the directors andentrepreneurs are still poor in the knowledge of market economies, laws and policies of theState and many lack enterprise management skills Fifthly, the skill levels of the workers arealso not high In order to meet the requirements of development, training and re-training is

necessary The ability to enter and access international markets is restricted As the SMEseffectively overcome these constraints and take full advantage of their strengths and exploittheir full potential, they will create a higher growth rate They will hence further contribute tothe economy, focusing on the task at hand in the industrialization and modernization of thecountry

3.3 Why SMEs are small in numbers

Although SMEs are developed and contribute large to the development of the country, inVietnam, SMEs still need many concerns from the government And investors are worried toinvest their money in this business The situation is the result of some problems facing in thebusiness environment [14]

One of the reasons is that, Vietnamese environment is high - risk environment Investors in

Vietnam facing numerous risks at starting point Firstly, they have to cope with the uncertainty

in the market due to the fluctuation of the demand, consumer power and fluctuation of the

price Secondly, political uncertainty has threatened managers Managers have very low

expectations of their government, and all keep watchful eye on the business process.Confidence in the government commitment to private enterprise is regularly undermined bycontradictory government statement and policy Government offers this business littleprotection from corrupt officials and critical propaganda Thirdly, managers took for grantedthe great numbers of regulations that pertain to nearly all aspects of their business as well asthe fact that many are hard to find, vaguely formulated and variously interpreted, frequentlychanging and poorly communicated Fourthly, limited access to useful information is also the

problem of SMEs managers Risks for managers were much heightened by shortages of key

information about products, markets, technologies, trends etc There are few sources of up to

date, high quality information within Vietnam (Survey on 95 Large Manufacturing Enterprise,

1999).

Second reason is the resource – poor business environment Managers in the field had

access few of the business resources normally used in great quantities and consideredessential by companies in market economy One of the poor business environments is the

ambivalence among public cause difficulty in creating consumers for company Public is

negatively thinking of private sector Also, there still under – develop of support institutions ascourts, university, public information agencies and lack of stock markets, currency marketsetc that support the development of SMEs in Vietnam Managers of SMEs in Vietnam alsohave less habit of using those supporting institutions Moreover, under – developed business

services cause difficulty Business service in Vietnam includes mainly seven sectors:

accounting, training, design and packaging services, market research, computer service, anddistribution logistics However, business service in Vietnam is in the negative position Firstly,there is a striking disconnect between government’s perception of the role of businessservices in the economy and current economic realities Secondly, in the eyes of consumers,business services in Vietnam are more expensive than the other economic sectors Thirdly,average quality of the business services is only adequate to poor, which would result inbusiness economy at a competitive disadvantage Fourthly, business sectors are lack ofspecialized capabilities and a strong customer orientation Lastly, public sectors dominate theprovision of business services normally provided in the private sector Furthermore, business

sectors have little experience from which to draw There is little experience nationally with light manufacturing Limited sources of appropriate skills training are also the problems that hinder the development of SMEs Training in Vietnam even though from universities or other

training centers has poor training contents The knowledge that is trained is not so useful inpractical

Additionally, due to lack of capital, SMEs in Vietnam could make investment in equipment and factory facilities impossible

3.4 Characteristics of SMEs in Vietnam

According to the Survey of 95 Large Manufacturers in Vietnam carried by Mekong Project

Development Facilities Project, SMEs in Vietnam are truly private with no shared ownershipwith the government SMEs formed in Vietnam includes limited liability companies, privateenterprise, join - stock with other individuals However, SMEs in Vietnam are eight yearsolder than expected Besides, SMEs operates in a narrow band of industries Theyconcentrate on five industries as manufactured garments, wood products, leather products,ceramics, and food & beverage products In table 3.1, Food and beverage sectors account forlargest production volume in the small and medium business sectors, followed non – metallicmineral sectors Another characteristic of Vietnamese SMEs is average turnover per month ofmanufacturing companies is 10 billion VND with about 330 employees However, many SMEshad access to short – term loans from banks but few to loans with maturates of four years ormore Half of the SMEs had purchased right to use land while half had long - term leases aswell

Table 3.1: SMEs share of production volume

Wood & rattan (cane) production 8.03

Source: Study on the promotion of SMEs industrial enterprise, 1999, UNIDO - MPI

3.5 Problems facing SMEs

SMEs in Vietnam has been hindered in the development process due to the followingproblems and constraints as the comments of UNIDO – Ministry of Planning and Investment

group members in ‘Research report on improving macroeconomic policy and performing

administrative procedures to promote development of small and medium enterprise in Vietnam’ carried out in January 1999

There are problems related to financial issues First, SMEs has to borrow mainly from financial institutions, usually from relatives and friends to meet the demand for credit.Because it is difficult for SMEs to access short, medium and long – term credits from banksand other formal credit institutions Procedures for short, medium and long – term creditprovided by banks and formal institutions are so complicated that leading to high transaction

non-costs making such credit too expensive for SMEs Regulations on collateral and investmentprojects are too stiff for many SMEs to meet in order to obtain access to the credit fromfinancial institutions Methods used to evaluate collateral are not clear and decision – making

in this respect by bank officials is arbitrary Secondly, it is difficulties for SMEs to access bothdomestic and international markets Also, SMEs lose the competitive advantage becausetheir products must compete with large inflow of smuggled imported goods that have cheaperprices They lack of international information, meet difficulties in maintaining competitiveness

in global market because the cost of production are very high relatively to the other countries

in South East Asian

Problems related to governmental regulations are included here One of these problems isthe lack of land for enterprise activities Obtaining land uses allocations or land leases forSME office and factories is fraught with many difficulties Another problem is that mosttechnology utilized by SMEs is obsolete due to the lack of capital for investment in newtechnology, imports of machinery and equipment are taxed at high rates from which FDIenterprise are exempted Also, it is difficult for Vietnamese enterprise to access internationalmarket for technology, machinery and equipment markets due to lack of information on suchmarket Beside, a number of existing rules, policies, and practices render technology transfer

to Vietnam from other countries difficult and expensive for all enterprise The problem isresulted from expensive and cumbersome procedures for entry visas for foreign experts whobring technology as well as high rates of personal income tax on foreign experts Moreover,SMEs competitiveness is reduced in domestic markets due to unfair competition Trademark,copyright and other intellectual property rights are not enforced strictly enough that resulted incounterfeit products Production infrastructure is in weak conditions In addition, law oncompetition has yet been adopted to regulate monopoly

Negative public attitude toward SMEs in Vietnam also causes the reduction in demand andconsideration of officials to the development of this sector Negative attitude is from the publicwith the reasons that, they think private sectors are not feasible It is unstable and less benefit

to work for SMEs There are discriminations in treatment of the government toward SMEsversus SOEs such as the ability to access financial or credit institutions Public are also think

of exploit the labor from SMEs directors

Training and development did not concentrated in practical knowledge In Vietnam, theoverall level is rather good, but the professional and the management skills are very lowrelative to the required demand Education system is biased in favor of basic knowledge.Curriculum contents offer for vocational schools do not satisfy the new needs Schools forbusiness administration, management and law are favor of a theoretical approach rather thanpractical problem

Information about enterprise as a whole and SMEs in particular is very scattered whichcauses difficulties in the management of credit allocation Also, it is limited in accessinformation about legal documents, markets, technological progress due to the unpublished

of registration records of enterprise as in the other countries (Thailand, Malaysia, Philippine

or Singapore) Vietnam does not have centralized computerized registered of all enterprisesopen to the public containing basic information on all registered enterprise

After the survey of current problem facing SMEs in Vietnam and the awareness of important

of SMEs development in the market economy The government gradually reforms thepolicies, regulations as well as the activities that support the development of this business

3.6 Supporting activities for SMEs development in Vietnam

Supporting activities of government to help develop SMEs is not only aimed at upgrading theVietnamese infrastructure, bring about the employment stability, diversified job opportunitiesand higher living standards but also to contribute to balance development of country throughindustrial development in rural and farming areas

Supporting activities include establishing organizations, creating simple procedures that helpSMEs access financial institutions such as introducing credit guarantee systems thatencourage the firms borrow money from financial institutions under the guaranteeing of thethird party (normally authorizing organizations) Also, law and regulations on land use,copyright, technology transfer and other related law to the business activities are going to beamended in order to support for development of SMEs On the other hand, government tries

to promote the output market for SMEs (as promoting exports) Human resource training anddevelopment is also other important point that the government pays attention to There aremany universities, training centers and vocational schools and encouraging sponsoring forforeign education to carefully prepare labor force in the future

In short, SMEs in Vietnam are facing many problems that hinder the development of thebusiness Therefore, this business is still be hindered for developing Recently, SMEs inVietnam are potentially on the way to develop due to the considerations from government andother authorities

Chapter 4 Son Thuy Office Furniture company and SWOT analysis

This chapter will describe the real business progress of Son Thuy Company and try to

analyze the office furniture market as well as company situation by using SWOT tools

4.1 Son Thuy background

4.1.1 Introduction

Hoa Phat is the trading company on construction machine It had started its business since

1980 Awareness of the potential market for office furniture in the North, Hoa Phat expandedits business to office furniture in 1995 with separated brand – Son Thuy office FurnitureCompany Currently, the company has about 500 employees There are about 40 office staff(male: 15, female: 25), 30 warehouse staff (male: 20, female: 10), and around 400 factoryemployees including 15 technician, 5 managers and the remains are workers

The company specified in four main types of office furniture: wooden office furniture, fabricoffice chair, steel pipe chairs and steel cabinets, other products as safety box or householdproducts are not discussed in the research

Son Thuy’s legal capital was 300 million VND at the starting year of business Presently, thiscapital increases to 950 million VND (1 USD = 14 000 VND) and total working capital is VND

10 billion In 1999, company’s turnover in office furniture seasons (from this September tonext January) is about VND 9 billion per month to VND 14 billion per month (equally to USD0.9 million to USD 14 million) with profit of 15 to 30 percent Out of office furniture season,turnover is about VND 8 billion per month

4.1.2 Owners profile

Mr Long is the acting president of Son Thuy Company He was born in 1961 and graduatedfrom Hanoi National Economics University At the university, he interested in venturing andlearned practical business He worked when he was studying Therefore, he gainedexperience from here However, he is very intelligent and awarded high mark aftergraduation After graduating, he worked for state own enterprise dealing with constructionand construction equipment After more than 2 years working, he learned experience andbuild up relationship with officials and business friends He left the company for his newprivate company named Hoa Phat Construction Company In the private company,employees will have more opportunities to be creative, active and self – decision making Early 1995, he and his five other friends contributed money, and with the supportedbackground from Hoa Phat to start his own business He has good memory, innovative,broaden knowledge of literature, society, economic and science Also, he is open –hearted,risk taker and has ability to attracting people to work for him In running his business, hedrove the company into the first mover in the market His hobbies are folk song and playingfootball as well as tennis

4.1.3 Organization structure

Currently, the company runs its business under the control of the following organization withempowering employee principle He empowered his staff, involved them into decision makingprocess

Figure 4.1 Company’s organization

Son Thuy current organization includes six main departments: research and development,accounting, investment and planing, sale I, sale II and administrative department under thecontrol of one director and board of management (4 people) The company also has four bigfactories with modern technology, machine and equipment

4.1.4 Son Thuy’s business progress

Son Thuy’s business has three periods: importing period, manufacturing period andmanufacturing & exporting period

a Importing period (1995 – 1996)

In this period, to gain the market share, Son Thuy had to attack My Viet – the successfuloffice furniture trading company with wooden office products My Viet monopolized the Northmarket with wooden office product (AT trademark) and steel cabinet (WILLY and LION) andgained most of the market share in the North market

Son Thuy met difficulties to create market share Firstly, Son Thuy met difficulty inestablishing the distribution network Wholesalers in the market refused to sell Son Thuy’sproducts due to the monopoly agreement with My Viet Secondly, it is difficult for thecompany to find suppliers in Asian market Son Thuy asked for buying products fromsuppliers (product with trademark WILLY, AT and LION), they refused to supply because ofcontract signed with My Viet company In contrary, the market for office furniture is potential

STEEL CABINET FACTORY

STEEL PIPE FACTORY

There was only one supplier in the North market with few designs Moreover, the demand forusing office furniture increased

Son Thuy’s managers found suppliers through International Office Furniture Fair holdannually in March and May in Malaysia, Taiwan and Singapore As a result, Son Thuyestablished the relationship with some Office Furniture suppliers UNICO from Malaysia forsteel cabinet products, CHEA – EE (Malaysia) for Wooden office furniture, OLYMPIC(Indonesia) for Home & Office wooden furniture, LEECO (Thailand) for steel cabinet & safetyboxes and ZEE LAUDIA Industries Corp (Taiwan) for Office Chair & Steel cabinet.Especially, Son Thuy also signed monopoly contract with two suppliers CHEA-EE andUNICO for not supplying their products to any importers in Hanoi market

To establish distribution networks, Son Thuy targeted at wholesaler distribution network inHanoi market, while My Viet distributed its products through both wholesalers and retailerschannel which would create conflict between wholesalers and the company about thecompetitive selling price This problem may cause My Viet’ failure in losing its market shares

in 1995 Son Thuy established its own shop; Ngoc Diep office furniture Ngoc Diep is also thebiggest and exclusive agent of Son Thuy Son Thuy’s active sale force played important role

in dealing with wholesalers Son Thuy attracted wholesalers with commission, discountpolicy, displaying product for free, and quick delivering time Moreover, Son Thuy sale forcecriticized the disadvantage of selling product for only one supplier in the shop

As the results, Son Thuy gained 20 % market share Turnover reached 8 billion VND(equivalent to 800 thousands USD) per month in the year 1995 for the office furniture season(from September of this year to February of the next year) and about 4 to 6 billion VND(equivalent to 400-600 thousands USD) per month (from March to August) It’s importedvolume about 10 x 40’ to 14 x 40’ (1 x 40’ = 600 units) containers for Fabric office chair, 8 x40’ containers for Steel Cabinet, 6 x 40’ containers for wooden office furniture

Son Thuy also traded wooden material (Melamine Faced Clipboard) in South market During

1995 – 1996, the South office furniture market was excited with big manufacturer (QuocThai)and households’ business Awareness of the potential for consuming wooden material forproducing in domestic market, Son Thuy expanded its business into wooden materialsuppliers by importing directly from MECO, Malaysia to sell in South market In 1997, SonThuy stopped trading wooden material to concentrate on manufacturing

b Manufacturing period (1996-1998)

In order to compete on the selling price successfully, Son Thuy invested in building factoriesand utilizing local materials Son Thuy asked for advice from old suppliers (CHEA EE, LION,WILLY ect.) on technology, machine & equipment imported and organizing the factory.Moreover, the company’s managers visited the International Office Furniture Fairs annually toresearch market, the designs, and created more relationship with other suppliers Currently,Son Thuy build four factories: Fabric office Furniture, Wooden office Furniture, Steel cabinetand Steel pipe factories which are located in Gialam (10 km North of Hanoi – the convenientplaces for transporting and delivering)

b.1 Fabric Office Chair factory

Early 1996, Son Thuy established Fabric Office Chair in Gia Lam (in Hanoi) next to High way

No 5 (Hanoi – Haiphong road – the two biggest cities with large number of consumers in theNorth market) This factory requires mainly manual work

Son Thuy bought molds for making casters, bases, and arm breast-making in local market(each mold costs about VND 200 million) and other machines Up to now, 90 % of spareparts for producing fabric chair had been made in domestic market Only 10 % of the sparepart were imported from foreign countries Son Thuy could reduce its manufacturing cost perchair and created this product as key products Son Thuy competes indirectly with Quoc Thaioffice furniture Company in the South of Vietnam

b.2 Wooden office Furniture Factory

Early 1997, Son Thuy built Wooden office products factory located in Gialam which is near tothe Fabric Office Chair Son Thuy imported know – how, machine and equipment fromTaiwan supplier as well as their help about technical issue In June 1997, the factory wasoperated and started to launch its product into the market However, Son Thuy importedwooden furniture to ensure supply capacity in the market Son Thuy had to compete with MocDong A for these products Early 1998, Son Thuy advertised its own products with quality,design familiar with imported products, but, the price is lower in comparison with importedproducts Furthermore, Son Thuy could easily find wooden materials supplier in domesticmarket and foreign countries based on the relationship

My Viet’s reputation, the direct competitor of Son Thuy in 1995, was disappeared in theconsumers’ mind In June 1998, My Viet stopped its business because it could not compete

on the price reduction with Son Thuy Son Thuy reduced the price of the finished products byproducing itself the products while My Viet traded the products with high imported tax only

b.3 Steel cabinet Factory

Early 1998, Son Thuy built the Steel Cabinet Factory in Nhu Quynh Industrial Zones (GiaLam – Hanoi) Technology, machine and equipment were imported from Japanese suppliernamed AMADA In April 1998, the factory had been going into operation with capacity of 800unit per month

b.4 Steel Pipe Furniture Factory

In order to utilize material from Steel Cabinet Factory and diversify the product to reach theleading position in Office Furniture market, Son Thuy invested in the fourth factory: Steel PipeFurniture Factory at the end of 1998 This factory’s products are steel plant products andsafety boxes and it is located in Nhu Quynh as well

In short, Son Thuy had very strong financial issue for investing and expanding its businessquickly within 4 years with the strategy to attack My Viet and achieve the market leadingposition In addition to this strategy, Son Thuy also plans to gain market share in foreignmarkets through exporting products

c Manufacturing and Exporting period (1999)

c.1 Plan to export

Early 1999, Son Thuy planed to export into foreign market In early 1999, the companyexported to Singapore through the broker who used to be its supplier for finished products(OLYMPIC) with volume of 10 x 40’ containers of Gaz lift chair Although the companystopped importing from OLYMPIC since 1997, based on good relationship between twocompanies, OLYMPIC helped Son Thuy find wooden importers from Malaysia and Singaporemarket Son Thuy signed sole contract to supply Gaz lift chair for an agent in Singapore.Also, Son Thuy targeted the Middle East countries as potential market for exporting MiddleEast countries’ markets information is researched through trade representatives of MiddleEast countries in Vietnam, Internet searching and old suppliers in Malaysia or Singapore.However, this method was not effectiveness Besides, Son Thuy had directly participated inthe Fair hold in one of the Middle East countries by displaying its products in the Fair InOctober 1999, Son Thuy displayed its products in Dubai Office Furniture Fair Son Thuy’sproducts attracted many Furniture suppliers from Arabia, Iraq, Kuwait, Malaysia, Taiwan,China as well as suppliers from European countries: England, Belgium, Italy or Germany inthe Fair As a result, Son Thuy signed the contract to supply four importers in Dubai (12 x 40’containers) since then

Both markets in Singapore and Middle East countries that Son Thuy aimed at exporting towould potentially became middle exporters to export its products to other countries MiddleEast countries are more attractive due to high consuming power and few manufacturers andsuppliers here

c.2 Exporting strategy

Son Thuy’s key exporting product is Fabric Office Chairs These products could be competed

in foreign markets as Malaysia, Taiwan, Thailand or Indonesia on the price and quality SonThuy’s products quality (as evaluated from 78% of consumer agree in the consumer surveyabout the quality of the product that was carried by the company last year) Gaz Lift Chair andSteel Plating Chair would be the main product for exporting into two new market: Singaporeand Middle East countries

they are adaptable to working environment they are selected to work there For technicalstaff, they are sent to Singapore, Taiwan to learn how to operate and dealing with themachine, equipment every year from 2 to 3 months.

Compensation

Son Thuy classified into different compensation and punishment policies for differentemployees in the company For instant, sale forces are rewarded according to their salevolume every half of year For R & D staff, they are rewarded rightly for new design or anycreative and innovative idea Office staff are rewarded every half of the year due to thecompany’ s profit Lastly, workers are rewarded if they work over capacity (in comparison withregulated amount)

However, the company has fierce punishment policy to lay off worker who make defect ordefective product for times Laying off staff if they are fail to obey company’s rule as violatingfinancial policy or being inability to work However, employees sometime complaint aboutoverloaded works and discrimination between staff and workers

4.2.1.2. Company infrastructure

Currently, Son Thuy has four factories with modern technology (machine, equipment, moulds,assembling line etc.) Also, company has one representative office in center of Hanoi and twowarehouses located in convenience places for transportation and loading

Company has large suppliers network in domestic market and in foreign countries Woodenmaterial supplied by the wooden suppliers that the company had relationship in 1997 TheCompany has strong power for negotiating the price and quality of material in the market.Also, it is easy for the company to find suppliers in South East Asian countries and easterncountries Moreover, its suppliers are loyal with the company in delivering the products, theycreate good condition for company to buy products, deliver products in time for company etc.The suppliers play important role of consultant for technology, technical problem andequipment Those suppliers guild for company technology, machine material supplier.Moreover, they help find exporting market, information, customers and importers

4.2.1.4. Marketing and sale

Son Thuy’s products have good value in the local market Up to now, Son Thuy’s products

are attracted by customers as the best products in the market (according to wholesaler’s

survey done by company’s saleforce in 1998)

Son Thuy manufactured varieties of office furniture products, each factory specifies at onetype of product as mentioned in company background While its competitors do not have bothwooden and steel products or all types of Office furniture products as tables (office tables,computer table), steel cabinets, office chairs and safety boxes

Although Son Thuy does not have separate marketing department, it includes two saledepartments: one for local market and another for foreign market Marketing functions areincluded in these departments Sale forces have to act as sale people as well as marketers to

create more orders from wholesalers, deliver products, get market information and collectmoney from customers.

Company’s sale forces are very active, self-confidant and self - decision-making They quicklycollect information from markets, catching habit of wholesalers and have actions to satisfy thewholesalers For example, sale force had criticized My Viet’s monopoly selling policydisadvantage for wholesaler, contribution to Son Thuy commissions policy to its wholesalers(Table 4.1) It rewarded wholesalers according to turnover per month awarding them a freetrip, holding wholesalers’ conference As a result, Son Thuy had built large distributionnetwork through wholesalers (their main customers) for office furniture products locatedmostly in main street as De La Thanh, Ham Long, Ton Duc Thang, Dai Co Viet streets (Haoicapital) At present, the company has not only distribution networks in Hanoi, but also inwhole country (in the South region and middle region of Vietnam)

However, the company has advertised its products through the Fair hold annually in domesticmarket and foreign market Other advertising methods are not introduced

Table 4.1 Compensation policy for wooden office products according to selling volume

(For wooden table size 1.2 m x 0.75 m x 0.75 m)

(thousandVND /unit)

Origin Compensation policy

20/5/96 CE1200 720 Malaysia > = 10 units, price reduction by 1

%, 20 units (2 %)5/9/96 CE1200 680 Malaysia >5 units (reduced by 50000 VND),

>10 (reduced 70 000 VND)1/8/97 CE1200 650 Malaysia >5 units (reduced by 50000 VND);

10 units (reduced 70 000 VND)

AT 1200

640620

VietnamVietnam

AT 1200, CI1200

390480

Vietnam >10 units (reduced by 50000 VND);

>20 units (reduced by 70000 VND)

Source: Selling department’s report, 1999

4.2.1.5. Manufacturing function

Company has good factory infrastructure: new factories with new machine and equipmentsuch as Crom, Nikel, and Copper plating line Company aimed at mass production strategy inorder to cut cost Its manufacturing products are named: SG for Office Chair, CAT for steelcabinet and CI & AT for table, SD and SV

In the Office Furniture seasons, company has run three shifts per day For the rest, companyrun only two shifts per day and spent time on new design creation & researching markets

Son Thuy has active sale force, quick respond to wholesalers’ orders Son Thuy equippedlarge number of carrier tools (trucks) which enable them to meet the demand of customersquickly

Delivering time, as wholesalers’ evaluation, Son Thuy always delivers product at their shop(while My Viet’s wholesalers had to carry products themselves) in time with quick respondtime

For payment policy, Son Thuy allowed wholesalers to buy their products without payingmoney (late payment) within two to four days and pay by all kinds of payment tools (cheque,cash)

Son Thuy’s products are easily carried because one unit can be separated into different partsand easily for packaging and installing

Sale department also has function of dealing with customer’s complaints And most of thecustomers’ complaints are dealing very quickly

4.2.1.7. Managerial capability

Son Thuy’s managers are risk - taker They pioneer in the investing of high technology formanufacturing office furniture products Son Thuy is also the first manufacturer in officefurniture market in Hanoi Besides, Son Thuy’s managers are responding very quickly to thechange of office furniture market situation in Hanoi Among suppliers who are trading OfficeFurniture products, Son Thuy pioneered in investing technology, machine and equipment Office staff was empowered to have own right in deciding in the works They are encouraged

to involve in contributing ideas to the decision making process of board of directors Staff areloyalty with the company because they benefit when they work for Son Thuy on physicalaspects (compensation, salary of at least 1 million VND/month (90 USD/month) as comparedwith average salary in Hanoi market 500.000 VND/month (40 USD/month) Workers are alsoloyalty with the company because they did not leave up company for other purpose comparedwith Moc Dong A (one of its competitors) where workers left up the company for their ownbusiness after their one year work for company